Low cost alternative to JSE on the cards

Many unlisted empowerment share schemes may soon trade through a new exchange, if the FSB grants 4 Africa Exchange (4AX) an exchange licence.

This would be nothing short of manna from heaven for the many over-the-counter (OTC) share schemes frustrated by an FSB directive that put them in jeopardy.

4AX is a share trading platform founded by group of multinational companies. The consortium, led by financial services company Bravura, will also include Trifecta Capital, Intercontinental Trust, Capital Markets Brokers, NWK and electronic exchange trading platforms developer Global Environmental Markets – the owner of which has been involved in developing over 30 exchanges in 22 countries.

The 4AX initiative follows a controversial FSB directive issued last year. It ordered B-BBEE share trading schemes, companies with restricted shareholding and other issuers trading in OTC markets, to find a solution to either licence their OTC platforms as a regulated exchange, change their structure so as to fall outside the definition of an exchange in terms of the Financial Markets Act (FMA) 2012, list on the Johannesburg Stock Exchange (JSE), or obtain the appropriate exemption to continue operating their share schemes.

“This caught many companies off guard and most of those companies applied for exemption from the requirements. In most instances, exemptions were granted for a limited period to [allow] companies to consider alternatives,” said 4AX spokesperson Stephan van der Walt.

But, with these exemptions no longer guaranteed – MTN Zakhele’s request to extend its exemption was recently declined by the FSB – companies have been been stuck between a rock and some hard places.

In obtaining a licence, 4AX says it would provide infrastructure and services that meet the needs of issuers, in terms of allowing them control over specific requirements about ownership, as well as the needs of investors, while adhering to the regulatory oversight provided by the FSB and meeting the requirements and the principles of the FMA.

4AX, which launched on Wednesday night, seeks to serve more than 20 companies which are currently not catered for by the JSE.

Speaking at the launch, Van der Walt, said more than 650 000 shareholders had been affected by the FSB directive, while affected issuers had market capitalisations in excess of R30 billion.

These figures, however, were based on market research conducted by financial services company Bravura, which is part of the consortium of multinational companies that have already invested R35 million in 4AX collectively.

Competition for the JSE

4AX will make it possible for shareholders to trade their shares over an online website platform, smartphone applications, call centre dial-in or through a walk-in broker help desk for face-to-face service.

In theory it could therefore provide an alternative to the JSE – the only licensed exchange in South Africa.

Many companies – that wish to restrict the trade for different shares to persons or entities that fulfil given criteria – are discouraged from listing on the JSE. Even though it does not cater to the same market, 4AX offers an alternative for smaller companies that are looking to raise funds but are either unable to afford the fees associated with a JSE listing, or apprehensive of the onerous regulatory framework of having a such a listing.

“The type of issuers that we will approach initially would not be able to list on the JSE in the first place,” said van der Walt.

“But, over time, 4AX we may become a competitor. Some of the issuers on the JSE might find that this is a better proposition for them. Alt-X companies, for example, don’t have a lot of liquidity as things currently stand, and this makes it quite expensive to be listed on the JSE. The rules for listing on the Alt-X also prove to be quite onerous for the companies.”

4AX’s costs will be lower and the rules will be more aligned to the Companies Act, he said.

A very big ‘if’

All of this is dependent on whether the FSB does, in fact, grant 4AX an exchange licence, which Anthony Wilmot, a founder of OTC platform Equity Express, says is unlikely.

“There’s nothing new about 4AX. There are many companies who plan to, or have already applied for exchanges. I know one that has been waiting for a licence for two years,” says Wilmot.

Nevertheless he has encouraged 4AX to approach his clients if it is indeed able to remedy their FSB induced headaches.

“Our clients are looking to list on an exchange that is not as onerous as the JSE, in order to fall in line with the FMA. What we do is provide administrative support services for clients operating in the OTC market,” says Wilmot.

After 4AX makes its submission, which Van der Walt says will be in two weeks’ time, the FSB will have 180 days to grant or deny the application.

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